Malone's on the Prowl Again

5/15/2003 10:05 AM Eastern

By: Mike Farrell

New York -- Liberty Media Corp. chairman John Malone made it officialThursday: He is on the acquisition trail.

Liberty has access to about $10 billion in capital -- not including $5.3billion in cash and marketable securities -- to make acquisitions. At thecompany's investor meeting here Thursday, Malone named at least two potentialtargets: cable shopping channel QVC Inc. and Vivendi UniversalEntertainment.

"The issue for Liberty is: What do we do with all this firepower?" Malonesaid. "We are certainly hopeful that we can acquire QVC from Comcast [Corp.].Despite all of the fisticuffs going on in the industry right now, we have thegreatest respect for Comcast and its management team."

But Malone added that Liberty gains even if Comcast decides to buy its stakein the network. "Nothing would thrill me more than to end up with a large blockof Comcast stock," Malone said.

As part of the QVC agreement, up to 4.9% of Comcast's outstanding shares -- roughly 115 million -- would go toward the purchase price. However, that stock would be nonvoting.

Analysts have estimated that the entire network is worthbetween $13 billion and $14 billion.

With VUE, Malone said Liberty has been in discussions with Vivendi Universalfor months.

Malone said having control of VUE would make other programming acquisitionsmore sensible, including perhaps acquiring the 50% of Courtroom TelevisionNetwork it doesn't already own.

"That's the reason why we're interested in Vivendi," he added. "It gives usnot just the opportunity to buy Vivendi, but also to have a platform on whichthe programming business becomes more valuable consolidated than not."

Regarding general industry issues, Malone said the balance of power hasshifted to cable operators rather than programmers. He added that with therecent high rate increases of sports-programming networks, something has got togive.

"There will be some compression on growth rates achieved through affiliatefees," Malone said. "It's going to be different for different players. If [TheWalt] Disney [Co.] needs 20%-per-year compound growth rates on its affiliatefees for ESPN, there is going to be a war."

That war could lead to government intervention, Malone said, adding that itwould be good for cable operators but bad for programmers.

"The most likely outcome would be some provision that says if a channel costsmore than 50 cents [per subscriber, per month], it's got to be a la carte,"Malone said. "End of story; end of Disney."

However, he added that he would prefer that the industry resolve the disputeprivately.

"Getting government to resolve intercorporate disputes may have a tacticaladvantage, but it's a strategic disaster," Malone said.

Malone added that Comcast president Brian Roberts would have to step up toforce change, however. As the head of the largest MSO (with 22 millionsubscribers), Comcast has the muscle to force programmers' hands.

Roberts could do that by selling QVC, Malone added.

"If Brian sends a big signal, if he sells the most profitable cable networkin the world, QVC, rather than buying it, one of the strategic reasons for himto do that is to get rid of the horizontal/vertical rules that apply to him,"Malone said.

"If he does that, you can also look for him to get out of E! [EntertainmentTelevision]," he added. "Because then he's clean. Then he can beat the crap outof everybody on rates and he won't have any antitrust issues related tohim."

Malone said retransmission consent was the biggest mistake to come out of theTelecommunications Act of 1996.

"It gives the broadcasters too much power, and they can use that to extractnoneconomic prices from operators," Malone said. "The irony is that if theyoveruse it, ultimately, somebody big, with guts, says, `Fine, we can livewithout your TV station and your six cable networks.' I'm waiting to see thathappen."

Malone added that it almost happened with him, just before he soldTele-Communications Inc. -- then the largest MSO in the country -- to AT&TCorp.

He said that prior to the AT&T deal, TCI's contract with ESPN was set toexpire. As part of that agreement, TCI had the right to place ESPN on a tier forfive years following the termination of the carriage agreement.

"We rolled on that issue," Malone said. "We signed a new deal with ESPN, andthe industry lost its only true defender."

Malone added that now, that mantle falls on Roberts.

"Somebody has to say no to the underlying sports machine," Malone said."Unless something is done to break that chain, either by Congress or by acourageous Brian Roberts, you're going to continue to see this happen ... We'llbe waiting and watching Brian defending the industry and being the championhere."